Washington Insider-- Monday

Escalation in US-Canada Lumber Dispute

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

USDA Sets Payouts to Socially Disadvantaged Farmers in Motion

USDA's Farm Service Agency (FSA) has released the initial notice of funding availability (NOFA) for eligible borrowers with direct loans under the Farm Loan Programs (FLP) or Farm Storage Facility Loan (FSFL) programs authorized by the American Rescue Plan Act of 2021 (ARPA).

"FSA will pay 120% of direct loan balances outstanding as of January 1, 2021, for socially disadvantaged farmers and ranchers," the agency said. A subsequent notice addressing guaranteed loans and remaining loan balances will be published within 120 days of the initial NOFA that is expected to be published this week.

All eligible direct loan borrowers are included in the initial NOPA "except those who no longer have collateral or an active farming operation," FSA said. "These borrowers often have more complicated cases and may not have the same opportunities to invest in their farming operation to manage tax liabilities. FSA expects these cases to account for approximately 5% of eligible direct loan borrowers. Procedures for payments to these borrowers will be addressed in a subsequent NOFA, which also will include eligible guaranteed loan borrowers."

"Eligible Direct Loan borrowers will begin receiving debt relief letters from FSA in the mail on a rolling basis, beginning the week of May 24," FSA announced, with the agency indicating that effort will run through June. Those receiving the letters have to sign and return it to FSA. In June, FSA said it would begin to process signed letters for payment. "About three weeks after a signed letter is received, socially disadvantaged borrowers who qualify will receive 20% of their total qualified debt by direct deposit which may be used for tax liabilities or other fees associated with payment of the debt." Those payments will be issued on a "rolling basis," FSA noted.

Appropriations Timing Set In House

House Appropriations Committee action on the one dozen Fiscal Year (FY) 2022 spending bills is planned for a three-week period around the July Fourth recess, according to a report from CQ RollCall.

Subcommittee markups would start June 24 and run through June 28--before the chamber exits July 1 for its break. A final subcommittee markup would be held July 12.

In the full committee, markups would be held from June 29-July 1, with work resuming July 13-16. Given the timeline that House Majority Leader Steny Hoyer, D-Md., has laid out of wanting to get all the spending measures through the House by the August recess, it may mean several of the bills could be packaged together.

Several hearings on FY 2022 budgets for various agencies are on tap this week and more will be coming after the Memorial Day break. So far, the FY 2022 USDA budget hearing has not yet been scheduled in either chamber.

Washington Insider: Escalation in US-Canada Lumber Dispute

The U.S.-Canada dispute over softwood lumber appears to be heading to an escalation. Bloomberg reported that the U.S. Department of Commerce issued new preliminary rulings on antidumping tariffs on Canadian softwood lumber imports that would double the current duties if implemented.

The International Trade Administration calculated a preliminary duty of 18.32%, but the current amount of 8.99% is in effect as there has not been a final determination, a Commerce official said Friday.

The final determinations will not be in place until later in the year. But the report will no doubt catch the attention of many in trade circles, particularly in Canada.

But this is only the latest chapter in what has been a seemingly decades-long battle between the two sides. Both sides have traded trade actions over softwood lumber.

Canada took a complaint to the WTO and in 2019, the world trade body said the U.S. had violated international trade rules in the way it calculated tariffs on Canadian imports of softwood lumber. That resulted in the current duty level of 8.99% which went into place in November, a trim from the level of 20.23% that had been in place.

British Columbia has been the most vocal in the situation. "We find the significant increase in today's preliminary rates troubling," Susan Yurkovich, president of the British Columbia Lumber Trade Council, said in in a statement. "It is particularly egregious given lumber prices are at a record high and demand is skyrocketing in the U.S. as families across the country look to repair, remodel and build new homes."

A big portion of U.S. lumber imports comes from British Columbia.

As for the preliminary increase, the U.S. Lumber Coalition welcomed the development. "A level playing field is a critical element for continued investment and growth for U.S. lumber manufacturing to meet strong building demand to build more American homes," Jason Brochu, co-chair of the coalition, said in a statement.

The National Association of Home Builders has urged the Biden administration to negotiate a new trade deal with Canada to secure supplies and halt further hikes, Bloomberg said.

But the situation is not only a concern in Canada but also in the U.S. as the current duties have pushed up lumber prices at a time when residential construction has been on the rise. Low U.S. interest rates have translated into low mortgage rates. And with a low supply of homes on the market, new construction efforts have been rising. Permits to build new homes have been posting strong increases at an annualized rate each month even as the level of starts is not coming close to the potential level that would be signaled by permits.

That is in no small part as lumber prices have risen dramatically. There has been a roughly 300% increase in lumber prices the past year. In fact, some builders and construction firms are bidding construction or addition jobs on a labor-only basis, saying that the materials cost will be what it costs.

If the higher duties go into effect, that will cause another rise in building costs for renovations, remodelings, additions and new construction. Already, the higher lumber prices are prompting some to hold off on such projects, but the potential increase in tariffs on Canadian lumber could cause some to "bite the bullet" and go ahead with on-hold projects in a bid to get them rolling before even higher costs are seen.

The situation has been interesting on the policy front. U.S. Trade Representative Katherine Tai told lawmakers she was eager to reach a softwood lumber agreement with Canada, being well aware of increased costs seen on the U.S. side of the border. But she also told lawmakers recently that Canada was not interested in any such agreement.

But then after the Free Trade Commission meeting last week between the U.S., Mexico and Canada, Canadian Trade Minister Mary Ng told reporters she wanted to reach an agreement with the U.S. on softwood lumber.

It is not clear why there appears to be a disconnect from the top trade officials in the two countries. But it is a disconnect that so far has not reached the point of the two sides setting time to sit down and discuss the matter in detail.

So we will see. The current tariffs have boosted lumber prices at an inopportune time on this side of the border. It would be an accomplishment by Tai and the Biden administration if they were to put this dispute behind them with some kind of a resolution. But the length of time this dispute has run, positions may not be as easy to change.

But it is a trade matter that agriculture needs to watch closely as it feeds throughout the U.S. economy and an escalation could prove damaging to the U.S.-Canada relationship on several fronts, Washington Insider believes, as history has shown that other sectors outside of those at the heart of a dispute can get snared as collateral damage.

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